MUSIC and books retailer HMV reported plummeting sales this morning as it continued to struggle to compete with supermarkets and the internet.

Annual profits at the chain which has branches of both its flagship HMV stores and Waterstones bookshops across Hampshire including Southampton and Winchester, fell 21 per cent to £98.2 million.

Bosses reported a 5.7 per cent slide in annual sales - worsening to a 10.1 per cent slump over the past nine weeks.

HMV has been under pressure from supermarket rivals and has lost sales to consumers' increasing use of the internet to buy goods.

Shares in HMV have fallen 28 per cent since July 2005 and dipped a further 3 per cent to 168.25p today - well below a 210p-a-share approach from private equity firm Permira it rejected earlier this year.

HMV has also fended off an approach for Waterstone's from the bookshop's founder Tim Waterstone.

Chief executive Alan Giles said: "As we expected, trading conditions in the first few weeks of the new financial year have remained difficult.

"However, we are making excellent progress with a two-year programme of initiatives which we anticipate will begin to improve performance during the crucial Christmas trading period and ultimately transform the group into a world class multi-channel retailer."

Richard Hunter, head of UK equities at Hargreaves Lansdown Stockbrokers, said the company "remains in a difficult place" but said its shares could be boosted by a further approach.

"HMV continues to be attacked from all angles and it remains unclear whether they are fully sure which way to turn," said Mr Hunter.

"The increasing encroachment of internet trading is threatening both its core music and book sales and although Waterstone's plans to launch its own online offering this autumn, it will be joining a crowded marketplace."